Outlook H2 2026: Coffee Market

These developments have periodically strengthened the U.S. dollar and placed intermittent pressure on emerging markets and commodity prices. Nevertheless, major producing countries such as Colombia and Brazil still offer attractive interest rate differentials, helping support local currencies. This, in turn, has affected selling activity in both countries by reducing the amount producers receive in local currency terms. In Brazil, the real may remain volatile in the coming months due to potential U.S. interest rate increases and rising political uncertainty linked to the start of the presidential race, factors that could also influence producer selling behavior.

In destination markets, higher interest rates directly increase the cost of financing inventories, particularly when the coffee market remains inverted. Demand, meanwhile, remains resilient, with Hedgepoint projecting consumption to recover to 181 million bags in 2026/27, while the USDA forecasts nearly 180 million bags, a record level. Major industry players also reported positive volume and revenue results during the first half of 2026, although there is a perceived change in consumer behavior, especially with the rise of in-home consumption.  

At the same time, imports into consuming countries have not increased and remain aligned with recent seasons, while inventories continue at extremely low levels. This suggests a growing tendency among buyers to import only what is strictly necessary, given the higher cost of carrying stocks. In the United States, this structural effect was intensified by a specific factor: the tariffs on Brazilian coffee imposed in mid-2025, which remained in effect until the end of that year for green coffee and until mid-2026 for instant/soluble coffee, reducing Brazil’s share of U.S. imports. Brazil’s share is among the lowest in the past 10 years, and no other origin (Vietnam, Indonesia, India, Central America) has been able to fully offset this loss.

In Brazil, the world’s largest coffee-producing origin, delays in the 2026/27 harvest caused by late flowering in 2025 and June rainfall also contributed to market volatility. Although total production volume was not affected, with 50.2 M bags of Arabica and 25.6 M bags of Conilon for a total crop of 75.8 M bags, rainfall and uneven cherry maturation negatively affected the quality of part of the Arabica crop and may influence premiums for higher-grade coffees, even though exports of both varieties are expected to increase during the season.

Producers, meanwhile, continue to hold back sales while awaiting the first flowering of the 2027/28 crop, particularly on the Arabica side. This behavior has also been reflected in export performance so far. During the first two months of the 2026/27 crop year (June and July), green Arabica shipments from Brazil remained below average levels. Conilon exports, however, increased, reflecting favorable Robusta arbitrage opportunities and Vietnam’s off-season period.

While Brazilian farmers continue to sell coffee at a relatively slow pace, climate-related risks remain elevated not only in Brazil but globally, helping sustain market volatility. The probability of a strong El Niño exceeds 75% between August and October 2026 and rises above 90% between October 2026 and January 2027. Risks are particularly significant for Southeast Asia’s Robusta crop during the 2026/27 and 2027/28 cycles, which could affect Arabica-Robusta arbitrage relationships, and remain moderate for Colombia’s Mitaca crop in 2026/27.

The earthquake that struck Colombia on August 10 also increased market sensitivity during the period. Although producing regions were not directly affected, infrastructure and logistics across Colombia's coffee supply chain were disrupted. Buenaventura Port, which handles most Colombian coffee exports, just returned to full operations at the end of August.

Despite these factors, the 2026/27 season is still expected to post a surplus of nearly 9 million bags, primarily due to Brazil’s record crop. In this context, the coffee market’s main challenge today is not supply availability, but rather the movement of coffee to destination markets within the current futures market structure. The market had already begun pricing in this surplus during the first half of 2026, when Arabica futures traded near 250 cents per pound. However, persistently low destination inventories, continued backwardation, delays in the Brazilian harvest, and increasing climate risks triggered a new wave of repricing during mid-year.

The December-March and March-May spreads reached their highest levels in roughly a decade July, remaining elevated in the following weeks as the market absorbed the slower pace of producer selling in Brazil. ICE certified stocks also failed to ease market concerns, as they approached their lowest levels since April 1999. While certified stocks are not synonymous with total physical coffee inventories worldwide, their decline reflects the fact that Brazil, historically the largest provider of certified coffee stocks, has refrained from submitting coffee for certification because local differentials do not justify doing so, contributing to the retention of supply at origin.

laleska.moda@hedgepointglobal.com